There are a number of positive fundamentals in India which we expect to be highly beneficial for the country’s economy, including positive demographics, low household credit penetration and economic reforms by the government.
Driving to Dividends
We believe another key growth driver for this emerging economy is set to be increased spending on infrastructure. Earlier this year we saw the launch of India’s first infrastructure investment trust, which operates six toll roads. We expect this to be the first of many such listings, boosted by the government’s plans to spend some U.S.$20bn on roads. India’s infrastructure is clearly developmentally behind that of many other countries and the authorities have seen what other countries such as China have achieved in this area as a result of investment-led growth.
India has the world’s second-largest road network, comprising 5.23 million kilometers. National highways are just 1.5% of the total road network and yet they carry 40% of the traffic volume; some 60% of freight is transported on roads. Clearly there is a need for more motorways, so we believe the infrastructure sector should benefit from new projects, many of which will be privatized.
As well as increased government spending, toll-road projects are also set to benefit from an additional government reform on tax. Up until July, India’s states had varying tax regimes, and drivers paying at inter-state toll points did so manually, which led to long queues. The government has introduced a Goods and Services Tax (similar to VAT), a harmonized system across India that could enable automation of toll collections, speeding up travel times. This in turn could see an increase in traffic growth and give rise to more toll income, supporting the dividend distributions from trusts like the one recently launched.
Another Runway for Growth
It is not just India’s road network that is being targeted by reforms and increased spending; aviation is another key area. In 2016, there were some 150 million domestic flight journeys in India, compared to c.900 million in the U.S. and around 500 million in China. Air travel may cost more, but it can take around one sixth of the time of rail travel. As such, we expect to see the number of airports increase significantly. Many are likely to go private (as public-private partnerships), and they could also use this new investment-trust structure for asset raising. As more trusts come to market, investors’ understanding of this new asset class should improve and is likely to spur greater demand too.
This is a financial promotion. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Please note that strategy holdings and positioning are subject to change without notice. Compared to more established economies, the value of investments in emerging markets may be subject to greater volatility owing to differences in generally accepted accounting principles or from economic, political instability or less developed market practices.
This is a financial promotion. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Newton Investment Management Limited is authorized and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. 'Newton' and/or 'Newton Investment Management' brand refers to Newton Investment Management Limited. Newton is registered in England No. 01371973. VAT registration number GB: 577 7181 95. Newton is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton's investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.
Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of BNY Mellon Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds, and (iii) Associated Persons of BNY Mellon Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms, including Newton and (iv) representatives of Newton Americas, a Division of BNY Mellon Securities Corporation, U.S. Distributor of Newton Investment Management Limited.
Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of The Bank of New York or any of its affiliates. The Bank of New York assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection therewith. © 2020 The Bank of New York Company, Inc. All rights reserved.